Financial Services Regulatory Update – September 2022 Round Up

Supervisory Levies

On 6 September 2022, the Central Bank 1942 (Section 32D) Regulations 2022 were published (here). These Regulations came into operation on 31 August 2022 and set out the levy contribution regulated entities are liable to pay to the Central Bank of Ireland (the “CBI”) in respect of each authorisation.

On 27 September 2022, the Credit Union Fund (Stabilisation) Levy Regulations 2022 (here) and the Credit Institutions Resolution Fund Levy (Amendment) Regulations 2022 (here) were also published. The credit institution resolution levy for 2023 is set at 0.024725%, a slight reduction from 0.024914% of assets in 2022 and the credit union stabilisation levy for 2023 was reduced to 0.001484% of total assets.

Government Legislative Programme

On 14 September 2022, the Government published its Legislation Programme for the Autumn Session 2022, containing priority legislation for drafting and publication (here). Priority legislation of note includes:

• the Credit Union (Amendment) Bill which will give effect to the outcome of the Review of Policy Framework of Credit Unions; and 
• the Loan Guarantee Schemes Miscellaneous Amendments Bill to create a time bound guarantee scheme for loans to businesses impacted as a result of the invasion of Ukraine and to increase the aggregate liability for contributions committed to the SBCI by relevant Ministers to fund delivery of future SME loan schemes.

It should also be noted that the Central Bank (Individual Accountability Framework) Bill will progress to the second stage of the Dáil.

SEAR/IAF

On 13 September 2022, the European Central Bank (the “ECB”) published its opinion (here) on the Central Bank (Individual Accountability Framework) Bill 2022 following a request from the Minister for Finance. The Government is obliged to consult the ECB on draft legislation which affects the CBI’s field of competence.

The ECB focuses on the relationship between the CBI’s national competence for supervision vis-à-vis the ECB supervision of significant institutions under the Single Supervisory Mechanism (“SSM”). Specifically, the ECB refers to the CBI regulatory power to prescribe PCF functions and highlights that the ECB has exclusive competence to grant and notify supervisory approval for PCFs in significant institutions. The ECB states that “The consulting authority is invited to refrain from conferring regulatory authority and tasks on the CBI under Irish law which may impinge upon this exclusive competence”.

Energy Crisis

On 14 September 2022, the European Commission (the “Commission”) published plans outlining a number of work streams related to the financial system to tackle the energy crisis (here). As part of a wider package of emergency energy measures, the Commission identifies three areas of focus for the financial system:

• addressing liquidity stress: to reduce collateral constraints due to margin calls for electricity companies, the Commission is considering a range of temporary measures under EMIR that would apply to gas and electricity derivatives;
• pricing of gas imports: the Commission is working on a transactions-based price benchmark that more accurately reflects the market for gas imports; and
• circuit breakers on trading venues: the European Securities and Markets Authority (“ESMA”) has been asked to investigate whether rules on circuit breakers need to be aligned across the EU.

Market Abuse
Q&As

On 23 September 2022, ESMA published updated Q&As on the Market Abuse Regulation (“MAR”) (here). Updates relate to Q&As nos. 5.11 and 5.12 relating to financial guidance and disclosure of inside information and market analysts’ expectations and the identification of inside information, respectively.

Crowdfunding
Q&As

On 23 September 2022, ESMA published a number of updates to its Q&As on the European crowdfunding service providers (“CSPs”) for business Regulation (“ECSPR”) (here). The updates to the Q&As relate to Section 3 ‘General Provisions’ and Section 5 ‘Investor Protection Provisions’ and clarify queries such as whether CSPs may operate or manage a non-internet based crowdfunding platform and whether CSPs may prevent a prospective non-sophisticated investor or non-sophisticated investor from investing on the basis of the result of the simulation of the ability to bear loss referred to in the ECSPR.

DLT

On 27 September 2022, ESMA published a report (here) following its call for evidence on the Distributed Ledger Technology Pilot Regulation (”DLTR”). The report makes recommendations relating to certain compensatory measures on supervisory data.

Based on the feedback received from the call for evidence, ESMA does not consider it necessary to amend the regulatory technical standards (“RTS”) on transparency and data reporting requirements for the purpose of the DLTR. However, ESMA recognises that for certain technical elements, guidance on ESMA's expectations would contribute to a consistent application of the DLTR.

ESAs’ Work Programme

On 30 September 2022, the European Supervisory Authorities (the “ESAs”) published its work programme for 2023 (here). The priorities for 2023 include:

• amendments to the Commission Delegated Regulation supplementing the Sustainable Finance Disclosure Regulation (Regulation (EU) 2019/2088) (“SFDR”);
• developing digital operational resilience standards;
• developing reporting templates for financial conglomerates; and 
• creating guidelines on the exchange of information on fit and proper assessments. 

Amendments to SFDR RTS

On 30 September 2022, the ESAs published a final report containing draft RTS which will amend the Sustainable Finance Disclosure Regulation RTS (the “SFDR RTS”) due to come into effect on 1 January 2023. 

The amendments proposed by the ESAs:

• focus on disclosures relating to specific investments in fossil gas and nuclear energy related environmentally sustainable economic activities as part of the disclosures of the taxonomy-aligned investments of a financial product; 
• make a technical change to Article 55 of the SFDR RTS (which provides that periodic disclosure of taxonomy-aligned investments for Article 8 SFDR financial products is conditional on a “commitment to make investments in economic activities that contribute to an environmental objective within the meaning of Article 2, point (17), of Regulation 2019/2088”) to remove the pre-condition of “commitment”;
• make two corrections to cross-references in the periodic disclosures under Article 55 and 62 of the SFDR RTS; and
• make minor changes to the templates for financial product pre-contractual and periodic disclosures provided in Annexes II to V to the SFDR RTS.

The next step is for the Commission to consider the ESAs’ final report and the draft delegated regulation with proposed amendments contained therein. Timing is unclear as to when the draft delegated regulation would apply. The ESAs have left it to the Commission to include an expected application date within the text of the draft delegated regulation “bearing in mind the time available for financial market participants if the disclosures would become applicable from 1 January 2023”.

Interpretation of SFDR    

On 9 September 2022, the Joint Committee of the ESAs published a list of SFDR queries requiring the interpretation of Union law sent to the Commission (here). Our briefing (here) provides further detail on these queries.

CBI Financial Stability Note

On 7 September 2022, the CBI published a financial stability note entitled ‘Climate Risks in the Financial System: An Overview of Channels, Impact, and Heterogeneity’ (the “Note”) (here). The Note examines how physical and transition risks may impact households, businesses and the financial sector and outlines that to reduce damage, significant changes are necessary in global energy efficiency and supply. 

The CBI highlights that:

• access to finance is a key consideration for businesses;
• with increasing levels of business emissions disclosures, bank and investor risk appetite and profitability expectations may vary;
• in the overall economy, physical risks from severe and more frequent flooding brought about by climate change may have implications for insurance decisions and property values; and
• continued in-depth analysis in this area will be required in order to measure and monitor risks for the economy and to the financial sector.

Retail Banking

On 5 September 2022, the Banking and Payments Federation Ireland (“BPFI”) published its July 2022 response to the Department of Finance Retail Banking Review (here). 

The BPFI response opines that:

• the retail banking sector is actively meeting the needs of consumers;
• there are increasing opportunities for specialist niche players to enter the market and compete by choosing to serve only certain segments of the retail banking market; and
• all ATM providers should be regulated to ensure fairness and include quality standards for fraud detection.

Qualifying Holdings

On 28 September 2022, the ECB consulted on its draft guide on qualifying holding procedures (here). This draft guide:

• aims to clarify how the ECB assesses applications to acquire qualifying holdings in banks;
• explains who is obliged to undergo qualifying holding assessments, the required documentation and how the ECB assesses these transactions; and
• provides information on complex acquisition structures, the application of the principle of proportionality and specific procedural elements.

The ECB’s consultation ends on 9 November 2022.

Amendments to CRR

On 13 September 2022, the European Parliament adopted its first reading position (here) on the European Commission's legislative proposal for a Regulation making targeted amendments to the Capital Requirements Regulation (“CRR”) in the area of resolution (the “Daisy Chain Proposal”). 

On 21 September 2022, the Council of the EU also published the text of a new Regulation (here) to make targeted amendments to the CRR and the Capital Requirements Directive (“CRD”). These amendments are intended to align the CRR/CRD with Directive 2014/59/EU (the “BRRD”) in respect of the prudential treatment of global systemically important institutions with a multiple-point-of-entry resolution strategy and methods for the indirect subscription of instruments eligible for meeting the minimum requirement for own funds and eligible liabilities. The Council has published the text ahead of its adoption of the Regulation. Once the Council of the EU adopts the proposal, the Regulation will enter into force 20 days after its publication in the Official Journal of the European Union.

RTS – Emerging Markets and Advanced Economies

On 21 September 2022, Delegated Regulation (EU) 2022/1622 on RTS on emerging markets and advanced economies was published in the Official Journal of the European Union (here). The Delegated Regulation entered into force on 11 October 2022.

ITS – Main Indices and Recognised Exchanges

On 27 September 2022, Implementing Regulation (here) containing implementing technical standards (“ITS”) with regard to main indices and recognised exchanges in accordance with the CRR was published in the Official Journal of the EU. The Implementing Regulation will enter into force on 17 October 2022.

EBA Transparency Exercise

On 22 September 2022, the EBA launched its annual EU-wide transparency exercise, as part of its efforts to monitor risks and vulnerabilities and to reinforce market discipline (here). The exercise is exclusively based on supervisory reporting data and will covers data relating to capital positions, profitability, financial assets, risk exposure amounts, sovereign exposures and asset quality. Results are expected to be published at the beginning of December.

Administrative Sanctions

On 27 September 2022, the CBI announced it had reprimanded and fined The Governor and Company of the Bank of Ireland pursuant to its administrative sanctions regime in respect of regulatory breaches related to tracker mortgage customer accounts (here). 

Extension of Pension Scheme Exemption

On 30 September 2022, Delegated Regulation (EU) 2022/1671 of 9 June 2022 (here) was published in the Official Journal. This Delegated Regulation extends the central clearing exemption for pension scheme arrangements (“PSAs”) by a further year until 18 June 2023. The Delegated Regulation entered into force on 1 October 2022. Further detail is available in our briefing (here).

Clearing Thresholds

On 28 September 2022, ESMA published a feedback report (here) on the review of clearing thresholds under EMIR.  

Under EMIR, ESMA is required to periodically review the EMIR clearing thresholds (“CTs”) and update them where necessary to ensure that they remain appropriate. ESMA launched a consultation paper in January 2022. This report presents the key comments raised by respondents to the consultation as well ESMA’s considerations and initiatives in relation to CTs. 

In terms of next steps, ESMA states that the amendments to EMIR proposed in the high-level response to the European Commission’s consultation on the targeted review of EMIR published in April 2022 (here) would address to a large extent many of the comments raised by respondents.

RTS – Non-sequential Amortisation

On 20 September 2022, the EBA published its final draft RTS (here) specifying the minimum performance-related triggers for simple, transparent and standardised (“STS”) on-balance-sheet securitisations that feature non-sequential amortisation.

The next step is for the final draft RTS to be submitted to the Commission for adoption. Following the submission, the RTS will be subject to scrutiny by the European Parliament and the Council before being published in the Official Journal of the European Union.

‘Dear CEO’ Letter

On 22 September 2022, the CBI published a letter to the CEOs of insurance firms offering home insurance policies. The letter relates to the risk posed to consumers of not having sufficient home insurance cover (here). The review of these risks was prompted by the reported increase in the cost of construction which impact property reinstatement values. The CBI states that some consumers may be at risk of not being fully protected in the event they have to make a home insurance claim.

The ‘Dear CEO’ letter sets out the main findings of the CBI’s review and the CBI’s supervisory expectations of insurance firms with respect to this issue and more broadly in respect of insurance firms’ approaches to consumer protection risk management.

Firms must share the contents of the letter with the Board of Directors and ensure that the Board of Directors has appropriate oversight of a firm’s plan to address the gaps identified or the actions required. Firms should submit plans to the CBI at cpnonlife@centralbank.ie by close of business, 28 October 2022.

CBI Insurance Newsletter

On 16 September 2022, the CBI published its insurance newsletter for September 2022 (here). Topics covered include sustainable insurance and guidance for (re)insurance undertakings on climate change risk, digitalisation in the insurance industry, outsourcing and underwriting by MGAs, operational resilience and the potential for consumer detriment. 

Group Insurance Terminology under IMD and IDD

On 29 September 2022, the Court of Justice of the European Union (“CJEU”) gave a preliminary ruling on the meaning of the terms ‘insurance intermediary’, ‘insurance mediation’ and ‘insurance distribution’ under the Insurance Mediation Directive (“IMD”) and the Insurance Distribution Directive (“IDD”), in the context of arranging membership of a group insurance policy (here). 

Suitability Requirement Guidelines

On 23 September 2022, ESMA published its final report on certain aspects of the MiFID II suitability requirements (here). 

This report includes final guidelines in Annex IV which build upon existing 2018 ESMA Guidelines and include revisions to take account of new requirements to integrate sustainability factors, risk and preferences into certain organisational requirements and operating conditions for investment firms. 

These guidelines will apply six months from the date of publication of the guidelines on ESMA’s website in all EU official languages. 

Further detail on the requirements to integrate sustainability factors, risk and preferences into organisational requirements and operating conditions for investment firms is available in our briefing (here).

DLT

On 9 September 2022, the European Union (Markets in Financial Instruments) (Amendment) (No. 4) Regulations 2022 were published (here).  

These Regulations amend the definition of ‘financial instrument’ to refer to ‘any of the instruments specified in Part 3 of Schedule 1 (including where such an instrument is issued by means of distributed ledger technology)’. The amendment made is intended to extend the definition of financial instrument to include those instruments issued by way of DLT (as required by Regulation (EU) 2022/858 on a pilot regime for market infrastructures based on distributed ledger technology).

These Regulations come into operation on 23 March 2023.

Provision of Investment Services

On 27 September 2022, ESMA published a statement reminding investment firms of the impact of inflation in the context of providing investment services to retail clients (here). The purpose of the statement is to remind investment firms to consider inflation when manufacturing investment protects and providing investment services.

Market Structures 
Q&As

On 23 September 2022, ESMA published updates to its Q&As on MiFID II and MiFIR market structures topics (here). The update relates to whether trading venues can set specific trading hours which are applicable only to a sub-set of financial instruments (or to a specific financial instrument).

Commodity Derivatives
Q&As

On 23 September 2022, ESMA updated its Q&As on MiFID II and MiFIR commodity derivatives topics (here). The updates made are extensive and relate to deletions and revisions to reflect legislative developments under the MiFID framework (including the entry into force of Delegated Regulation (EU) 2021/1833 relating to criteria for establishing when an activity is to be considered to be ancillary to the main business at group level and Commission Delegated Regulation (EU) 2022/1302 which contains RTS for the application of position limits to commodity derivatives).

Transparency
Q&As

On 5 September 2022, ESMA published its Q&As on MiFID II and MiFIR transparency topics (here). The update confirms that transfers of financial instruments between two branches of the same legal entity or a branch and its parent company are not subject to the transparency or transaction reporting requirements, as they do not entail a change in the ownership of financial instruments.

RTS - Fixed Overheads Requirements

On 5 September 2022, Commission Delegated Regulation (EU) 2022/1455 supplementing the Investment Firms Regulation (the “IFR”) with regard to RTS on fixed overheads requirements was published in the Official Journal of the European Union (here).

The RTS cover the calculation of the fixed overheads requirement, calculation of the fixed overheads requirement for commodity and emission allowance dealers and the notion of material change.

The Delegated Regulation entered into force on 25 September 2022. 

UCITS – Integration of Sustainability Risks

On 9 September 2022, the European Union (Undertakings for Collective Investment in Transferable Securities) (Amendment) (No.2) Regulations 2022 were published (here). 

These Regulations transpose the provisions of Commission Delegated Directive (EU) 2021/1270 into Irish law which require UCITS management companies to take account of sustainability risks and sustainability factors in their operations. Further detail on these requirements is available in our briefing (here).

The Regulations came into force on 12 September 2022.

Russian Restrictive Measures

On 9 September 2022, Council Implementing Regulation (EU) 2022/1501 of 9 September 2022 concerning restrictive measures directed against certain persons, entities and bodies in view of the situation in Ukraine was published here. This Implementing Regulation removes four named individuals from the list of sanctioned persons whose funds and resources were frozen.

In addition, the following legislative instruments were published concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine:

• Council Decision (CFSP) 2022/1530 of 14 September 2022 amending Decision 2014/145/CFSP was published in the Official Journal (here). This Decision extends the duration of the restrictive measures for a further six months, until 15 March 2023. It also amends the Annex to Decision 2014/145/CFSP by deleting certain persons from the list of sanctioned persons, by deleting certain duplicate entries, and by replacing certain entries with new information;
• Council Implementing Regulation (EU) 2022/1529 of 14 September 2022 implementing Regulation (EU) No 269/2014 was published in the Official Journal (here). It deletes certain persons, deletes duplicate entries and replaces certain entries in the list of sanctioned persons in Annex I to Regulation (EU) No 269/2014; and
• three notices informing data subjects of the extension and the changes were published here, here and here.

The Commission continues to update its consolidated FAQs in respect of sanctions (here).

Update to SI

On 13 September 2022, the European Union (Anti - Money Laundering: Central Mechanism for Information on Safe - Deposit Boxes and Bank and Payment Accounts) (Amendment) Regulations 2022 were published (here).

These Regulations make minor amendments to the European Union (Anti-Money Laundering: Central Mechanism for Information on Safe-Deposit Boxes and Bank and Payment Accounts) Regulations 2022 which were published in February this year.

Administrative Sanctions

On 15 September 2022, the CBI announced it had fined and reprimanded Danske Bank A/S under the administrative sanctions regime for transaction monitoring failures relating to AML/CFT systems (here). 

Selected Consultations, Discussion Papers, Speeches and Reports Published

EBA – AML/CFT newsletter issue 8 (here)

EBA – Report on Basel III full implementation impact monitoring exercise (here)

EBA – Work Programme 2023 (here)

EBA - Final Report on Guidelines on Transferability to Complement the Resolvability Assessment for Transfer Strategies under the BRRD (here)

EBA – Response to the European Commission on the current level of margins and of excessive volatility in energy derivatives markets (here), together with an accompanying letter (here).

EBA - Amending Guidelines on the Specification and Disclosure of Systemic Importance Indicators (here).

EBA - Second Report on the functioning of AML and CFT colleges under the Fourth Money Laundering Directive (here).

ECB – Announcement relating to the appointment of a group of five experts on banking supervision to review the effectiveness and efficiency of the supervisory review and evaluation process (“SREP”) and how it relates to other processes (here)

ECB - Opinion on the proposed Regulation amending the Central Securities Depositories Regulation (here)

EIOPA – Report on data quality in Solvency II reporting (here)

EIOPA – EIOPA Strategy 2023-2026 (here)

EIOPA - Supervisory Statement on the Management of Non-affirmative Cyber Underwriting Exposures (here)

EIOPA - Update to Risk-free Interest Rate Term Structures (here).

EIOPA - Supervisory Statement on Exclusions in Insurance Products arising from Systemic Events (here)

ESMA – Report on Trends, Risks and Vulnerabilities (here)

ESMA – Spotlight on Markets August Newsletter (here)

ESMA – Consultation Paper - Draft RTS on Business Reorganisation Plans (Articles 37(4) and 38(4) of CCPRRR) (here)

ESMA – Consultation Paper on Market Outages (here)

ESRB - Warning regarding the Vulnerabilities in the European Union Financial System (here)

European Commission – Second Annual Report on the Screening of Foreign Direct Investments into the Union (here)

European Commission - Letter to the EBA in response to the Current Level of Margins and of Excessive Volatility in Energy Derivatives Markets (here)

European Parliament – Committee on the Internal Market and Consumer Protection Report on the Proposal for a Directive of the European Parliament and of the Council on Consumer Credits (here)

Financial Conduct Authority - updated its webpage outlining how to cancel a temporary permission if a firm is in the temporary permissions regime (“TPR”) or the supervised run-off (“SRO”) regime (here)

Financial Markets Law Committee – Letter to the EBA consultation on Implementing Technical Standards on NPL Transaction Data (here)

Financial Services and Pensions Ombudsman – Annual Report 2021 (here)

ISDA – ‘In Review’ – September 2022 -  A compendium of links to new documents, research papers, press releases and comment letters published by ISDA in September 2022 (here)

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